[Federal Register: December 4, 2007 (Volume 72, Number 232)]
[Rules and Regulations]
[Page 68060-68062]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04de07-3]
[[Page 68060]]
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FARM CREDIT ADMINISTRATION
12 CFR Part 620
RIN 3052-AC37
Disclosure to Shareholders; Annual Report to Shareholders
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, Agency, we) issues this
final rule amending our regulations to allow Farm Credit System
(System) institutions 90 calendar days to prepare and distribute annual
reports to shareholders, while retaining the 75 calendar day
requirement for electronic reporting and distribution to the FCA.
DATES: Effective Date: This regulation will be effective 30 days after
publication in the Federal Register during which either or both Houses
of Congress are in session. We will publish a notice of the effective
date in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Christopher D. Wilson, Policy Analyst, Office of Regulatory Policy,
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4414, TTY
(703) 883-4434, or
Bob Taylor, Attorney Advisor, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4020.
SUPPLEMENTARY INFORMATION:
I. Objectives
Our objectives in this final rule are to:
Extend the time for System institutions to prepare and
distribute their annual reports to shareholders from 75 calendar days
to 90 calendar days; and
Promote high quality and timely reporting and disclosure
by System institutions to shareholders and the FCA.
II. Background
A. Annual Report Distribution Under FCA Regulations
Part 620, Disclosure to Shareholders, establishes the requirements
for financial reports for Farm Credit banks and associations. In
pertinent part, Sec. 620.4 establishes the time requirement for System
institutions to prepare and provide to their shareholders an annual
report. System institutions have historically distributed or made
annual reports available to shareholders in hard copy.
In December 2006, the FCA published a final rule amending Sec.
620.4 to require that System institutions provide annual reports to
shareholders within 75 calendar days from the close of the fiscal year.
Prior to that time, System institutions had a 90-day deadline. The FCA
noted that significant technological developments had occurred over the
past decade that had increased the market's appetite for timelier
disclosures of financial information. Consistent with changing industry
practices, the FCA believed that accelerated reporting would improve
information flow and facilitate shareholder and investor
decisionmaking. The rule became effective on February 16, 2007.
Compliance with the final rule would take effect by the start of the
fiscal year immediately following the effective date of the rule. Thus,
the 2007 annual report was to be the first annual report distributed
under the accelerated filing requirements.
B. System's Concerns
After the rule became final, System institutions raised several
concerns regarding the new 75-day filing requirement. Specifically,
System institutions stated that they believed the 75-day requirement
only applied to the electronic filing of the report with the FCA and
not to the report provided to shareholders. They also collectively
stated that it would be burdensome for them to comply with the 75
calendar day accelerated distribution requirement for the annual report
to shareholders because of the prohibitive costs and time needed for:
(1) The external audit and review process; (2) the audit committee
review; and (3) the printing and distribution of the annual report.
Furthermore, System institutions indicated that the accelerated filing
requirement could adversely affect the timeliness, accuracy, and high
quality that have been standard with such disclosures.
III. Proposed Rule on Annual Report to Shareholders
After reviewing the System's concerns, we published a proposed rule
in the Federal Register on August 14, 2007, with a 30-day comment
period that ended on September 13, 2007. See 72 FR 45390, Aug. 14,
2007. The proposed rule would allow a System institution up to 90
calendar days from the close of its fiscal year to prepare and provide
a copy of the annual report to shareholders, while retaining the 75
calendar day accelerated filing requirement to send an electronic copy
of the report to us. To ensure accelerated disclosure, the proposed
rule would require that each System institution: (1) Send the report
electronically to the FCA within 75 calendar days from the close of the
institution's fiscal year and, at the same time, publish a copy of its
annual report on its Web site; and (2) provide prior written
notification to its shareholders that the institution will publish its
annual report on the institution's Web site when the report is sent
electronically to the FCA. Furthermore, we stated that the copy of the
annual report provided to the shareholders must be substantively
identical with the annual report sent to the FCA.
We believed that the bifurcated approach resolved any ambiguities
from the prior rulemaking and appropriately addressed the System's
concerns of providing attractive, high quality, annual reports to
shareholders, while meeting the goal of accelerated filing and
disclosure.
IV. Comments on the Proposed Rule
We received comments on the proposed rule from four System
institutions, the Federal Farm Credit Banks Funding Corporation
(Funding Corporation) on behalf of the System's Accounting Standards
Workgroup, two System banks, and a System association. Overall,
commenters generally supported the proposed rule, but expressed some
concerns and suggested several changes to the proposed rule. We address
the substantive comments below.
A. Publish the Annual Report on an Institution's Web Site
The Funding Corporation stated that it believed that not all
associations have Web sites and wanted the FCA to clarify what such an
institution should do.
We discovered that two small associations do not appear to have an
online presence. We agree with the commenter that there is a question
of how these institutions will comply with the rule. Because there are
only two System institutions without a Web site, we do not believe that
we need to change the rule as proposed. For these two institutions
only, they could: (1) Develop their own Web sites; (2) publish their
annual report on another Web site that is available to the shareholders
without an access cost; or (3) make it available by other equivalent
means. For example, these two institutions could determine whether they
could publish their annual reports on the district bank's or the Farm
Credit Council's Web site. The institutions would still be required to
comply with all other provisions of the rule, including providing a
notice to their shareholders where the annual report
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will be made available and sending a substantively identical copy of
the annual report to both the FCA and the shareholders. Also, we note
that under Sec. 620.2(b), each institution must make its annual report
available for public inspection at the institution and at the FCA
office where the report is filed.
B. Prior Written Notification to Shareholders
We received identical comments from two commenters on Sec.
620.4(a)(3), which requires each System institution to provide prior
written notification to its shareholders that the institution will
publish its annual report on its Web site when the report is sent
electronically to the FCA. Commenters asserted: (1) That the
requirement to provide prior written notification to shareholders would
be unreasonably burdensome and not confer any potential benefits to
shareholders; and (2) it was unclear how often written notification
must be provided.
As to the first comment, we have assessed the potential benefits of
enhanced shareholder decisionmaking versus the costs of providing
timelier financial and operating disclosures. Although associations may
have some added burden from prior written notification, we fully expect
that any such added burden to be minimal and far outweighed by the
benefits to shareholders. As discussed below, System institutions have
many options on how to comply with the requirement of prior written
notification.
As to the second comment on how often written notice is required,
we again state that written notice must occur only once. In the
proposed rule, we stated that the prior written notice must be
prominent and conspicuous so that there is effective shareholder
notice. This means that a System institution must provide each
shareholder effective notice only one time. Institutions have the
flexibility to determine the most appropriate or cost-effective way(s)
to implement this requirement, including written notification in the
Annual Meeting Information Statement, in the preceding fiscal year
annual report, when a loan is made, sending a postcard to all
shareholders, or including the notice with correspondence to
shareholders (e.g., annual tax statements, newsletters, etc.)
C. Communicating Notice of Web Site Availability
Commenters also questioned the need to require System institutions
to notify shareholders of the Web site availability of annual reports.
The commenters stated that posting annual reports on an institution's
Web site does not fulfill the regulatory obligation to deliver the
reports to shareholders. Finally, they further stated that the
individuals most likely to use early Web site access to the annual
reports are those who would consult the Web site for information
anyway.
We believe that the accelerated filing and posting on the Web site
of the annual report improves information flow and facilitates
shareholder and investor decisionmaking. The use of the Internet and
electronic reporting have become industry standards. Although requiring
a System institution to post annual reports on its Web site does not
fulfill all regulatory obligations, it does facilitate achieving the
desired objective of timelier disclosures and improved information flow
between associations and their shareholders and investors. Accordingly,
a System institution should also include the Web site address with the
written notification.
D. Persons Entitled to Notice
Two commenters said that the proposed rule requires that notice be
provided to ``shareholders and other interested persons,'' but does not
define the term ``other interested persons.'' The commenters suggested
that we either define or delete this term.
We agree with the commenters that, as currently written, the term
``other interested persons'' may be unclear. Thus, we are eliminating
reference to that term. The final rule will require that notice be
provided to ``shareholders.''
V. Description of Final Rule
A. Section 620.4--Preparing and Providing the Annual Report
Section 620.4 establishes the requirement for each System
institution to prepare and provide a copy of its annual reports to its
shareholders. Existing paragraph (a) of this section requires that each
System institution prepare and provide to its shareholders an annual
report within 75 days of the end of its fiscal year. In the proposed
rule, we proposed to revise Sec. 620.4 to require that each
institution of the Farm Credit System: (1) Prepare and send us an
electronic copy of its annual report within 75 calendar days of the end
of its fiscal year; (2) publish a copy of its annual report on its Web
site when it sends us the electronic copy; (3) provide prior written
notification to its shareholders and other interested persons that the
institution will publish its annual report on the institution's Web
site when it is sent electronically to us; and, (4) within 90 calendar
days of the end of its fiscal year, prepare and provide to its
shareholders an annual report that is substantively identical to the
copy of report that it sent to us.
After careful consideration of the substantive comments received,
we adopt the modified provisions as final.
B. Technical Amendment
We are not making a technical amendment because there is no need
for it.
VI. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), the FCA hereby certifies that the final rule will
not have a significant economic impact on a substantial number of small
entities. Each of the banks in the System, considered together with its
affiliated associations, has assets and annual income in excess of the
amounts that would qualify them as small entities. Therefore, System
institutions are not ``small entities'' as defined in the Regulatory
Flexibility Act.
List of Subjects in 12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and
recordkeeping requirements, Rural areas.
0
For the reasons stated in the preamble, we are amending part 620 of
chapter VI, title 12 of the Code of Federal Regulations as follows:
PART 620--DISCLOSURE TO SHAREHOLDERS
0
1. The authority citation for part 620 continues to read as follows:
Authority: Secs. 4.19, 5.9, 5.17, 5.19, 8.11 of the Farm Credit
Act (12 U.S.C. 2207, 2243, 2252, 2254, 2279aa-11); sec. 424 of Pub.
L. 100-233, 100 Stat. 1568, 1656.
Subpart B--Annual Report to Shareholders
0
2. Revise Sec. 620.4(a) to read as follows:
Sec. 620.4 Preparing and providing the annual report.
* * * * *
(a) Each institution of the Farm Credit System must:
(1) Prepare and send to the Farm Credit Administration an
electronic copy of its annual report within 75 calendar days of the end
of its fiscal year;
(2) Publish a copy of its annual report on its Web site when it
sends the report electronically to the Farm Credit Administration;
(3) Provide prior written notification to its shareholders that the
institution
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will publish its annual report on the institution's Web site when the
report is sent electronically to the Farm Credit Administration; and
(4) Within 90 calendar days of the end of its fiscal year, prepare
and provide to its shareholders an annual report substantively
identical to the copy of the report sent to the Farm Credit
Administration under paragraph (a)(1) of this section.
* * * * *
Dated: November 28, 2007.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E7-23502 Filed 12-3-07; 8:45 am]
BILLING CODE 6705-01-P